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House price solutions 'will be ignored'

BNZ chief economist Tony Alexander has proposed some radical solutions to the housing affordability problems but says the likelihood of them being implemented is not strong.

He said the optimal solution to affordability, increasing bank exposure to debt, a strong NZ dollar and a lack of accommodation for low-income families was a quick jump in house supply combined with a drop in the cost of building materials.

He says minimum deposit rules will just make it harder for first-home buyers and other lenders will crop up to get around rules on bank lending. He says construction inflation will continue to push up the dollar and the lack of affordable housing will push middle-income earners into traditionally low-income areas, and push the poorest families out.

The only solution, he says, is to:

  • First initiate a large builder training programme targeting not just youth but low skilled migrants. “Yes, the migrant gates would need to be opened. Just the signalling of strong intention to boost builder numbers would make investors think twice about their capital gain assumptions."
  • Second, ban councils from imposing any development fees and allow developers to install their own infrastructure.
  • Third, create an SOE whose sole purpose is to undercut existing building materials suppliers through bulk purchases from offshore, nodal warehousing and distribution from just three or four locations in the country, with a separate agency responsible for monitoring the quality of materials sourced.
  • Fourth, initiate a new large state house building programme relying largely on the to be created new carpenters etc. Constrain new state houses to more efficient building systems including  containerised modular housing (this doesn’t involve shipping containers), central and screwed in foundations, etc.
  • Fifth, ban house sales to non-residents (even new houses given the ease with which special developments could arise targeting solely folk offshore and soaking up construction sector resources).
  • Sixth, impose a tax on all houses owned by Kiwis offshore with the aim of encouraging them to sell them.
  • Seventh, put in place a capital gains tax on second properties and farmland and immediately payable stamp duty for all second house purchases.
  • Eighth, rezone all land within 10-20 kilometres of existing city boundaries as residential.

In order, he says the chance of the policies being implemented is: Low, zero, zero, mild, mild, zero, low, zero.

“Some land will be freed up but it will little affect section prices, construction will soar and rising costs will force higher interest rates and a higher NZD. The Reserve Bank will tighten high loan to  value lending but the impact will be minimal and mainly encourage young buyers to raise more expensive finance elsewhere (a big business opportunity looms there) or to leave the country to make a purchase overseas.”

He says freeing up more land shouldn’t be thought of as the definitive answer. “I spoke with a real estate agent today who noted that a project they had sold units in has just been canned because the developer cannot find anyone to build the complex. Or more accurately, he got some quotes but not many for the 32 unit development and the cost would have made it unprofitable given the prices which buyers had signed up and paid deposits for. Those deposits are now on their way back to the hopeful buyers.”

Tags: housing affordability


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